eBASE (3835) FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of the fiscal year ending March 2027 resulted in higher revenue but lower earnings, raising questions about the quality of the revenue growth. Revenue increased to ¥1.16B (+7.9% YoY), while Operating Income declined to ¥0.13B (-12.2%), Ordinary Income to ¥0.14B (-8.2%), and Net Income to ¥0.08B (-24.2%). The primary factors were SG&A expenses, which increased 17.4%, outpacing revenue growth, and the rise in the effective tax rate to 44.8%, which placed pressure on Net Income.

Factors Affecting Performance

【Revenue】Revenue increased 7.9% YoY to ¥1.16B. By segment, the eBASE-PLUS Business, which is centered on IT development outsourcing, led growth with revenue of ¥0.72B (+9.8%), accounting for 61.9% of company-wide revenue. The eBASE Business also posted higher revenue of ¥0.44B (+4.8%); however, cloud services grew +23.7%, while packaged software declined sharply by -54.3%, indicating a shift in the business mix.

【Profit and Loss】Operating Income declined to ¥0.13B (-12.2% YoY), Ordinary Income to ¥0.14B (-8.2%), and Net Income to ¥0.08B (-24.2%). The gross margin improved slightly to 43.1% from the previous year, but the SG&A ratio increased to 31.9% from 29.3%, putting pressure on profitability. The primary reason that the rate of decline in Net Income exceeded that of Operating Income was the increase in the effective tax rate from 33.1% to 44.8%. Non-operating income and expenses contributed approximately ¥0.009B to Ordinary Income, and the gap between Ordinary Income and Net Income was primarily attributable to the tax burden. In conclusion, the Company posted higher revenue but lower earnings, with the inability to convert revenue growth into profit growth being the defining feature of these results.

Segment Analysis

The eBASE-PLUS Business showed an improving trend, with revenue of ¥0.72B (+9.8%), segment profit of ¥0.12B (+17.6%), and a profit margin of 16.6% (15.5% in the previous year), resulting in both higher revenue and higher earnings. The business accounted for approximately 86% of total segment profit of ¥0.14B and continued to drive company-wide earnings as the core business. Meanwhile, although the eBASE Business posted higher revenue of ¥0.44B (+4.8%), segment profit fell sharply to ¥0.02B (-61.2%), and its profit margin dropped significantly from 11.7% to 4.3%. The substantial deterioration in the profit margin despite revenue growth suggests changes in the cost structure or project profitability, and the pace of recovery in subsequent quarters should be monitored.

Key Financial Indicators

【Profitability】The Operating Income margin declined 2.6pt to 11.1% from 13.7% in the same period of the previous year, while the Net Income margin also declined 2.8pt to 6.6% from 9.4%. The gross margin was 43.1%, broadly in line with the previous year, indicating that the deterioration in profitability was attributable not to cost of sales but to the increase in the SG&A ratio (29.3%→31.9%).【Cash Flow Quality】Non-operating income was ¥0.01B, equivalent to only 0.8% of revenue, and the difference between Ordinary Income and Operating Income was negligible. The effective tax rate rose to 44.8% from 33.1% in the previous year, reducing the conversion rate from profit before tax to Net Income.【Investment Efficiency】Annualized ROE was 4.5%, against a backdrop of the lower Net Income margin and low financial leverage (total asset turnover of 0.607x).【Financial Soundness】The Equity Ratio was 89.0%, and liquidity was extremely high, with current assets of ¥5.19B compared with current liabilities of ¥0.80B. Cash and deposits totaled ¥4.34B, accounting for 56.9% of total assets, indicating a conservative and robust financial foundation.

Cash Flow Analysis

As this disclosure does not include cash flow statement data, cash trends are analyzed based on changes in the balance sheet. Cash and deposits totaled ¥4.34B, down ¥0.62B from ¥4.95B in the previous year. This decline is likely attributable to investment expenditures associated with making KSP-SP Co., Ltd. a consolidated subsidiary, as well as shareholder returns such as dividends. Accounts receivable were ¥0.66B, down ¥0.28B from ¥0.94B in the previous year, possibly reflecting progress in collections or changes in the timing of revenue recognition. Intangible assets increased by ¥0.34B due to the recognition of ¥0.297B in goodwill. Overall, the asset scale contracted, but the Equity Ratio remained high at 89.0%, ensuring ample financial flexibility.

Quality of Earnings

The decline in earnings was primarily attributable to changes in the recurring cost structure, and no temporary factors related to extraordinary gains or losses have been identified. Non-operating income consisted of stable sources such as interest and dividend income and remained modest at 0.8% of revenue; accordingly, its impact on Ordinary Income was limited. Meanwhile, the increase in the effective tax rate from 33.1% to 44.8% widened the gap between profit before tax and Net Income, making the tax burden a key factor affecting the quality of earnings this fiscal period. From a business perspective, while the core eBASE-PLUS Business secured both revenue and profit growth, segment profit in the eBASE Business declined substantially, meaning that company-wide earnings are built on this polarized structure. Comprehensive Income was ¥0.09B, approximately in line with Net Income of ¥0.08B. Although there was an increase from valuation differences on securities, the gap between Net Income and Comprehensive Income remained limited.

Earnings Forecast and Guidance

Progress against the full-year plan in Q1 was 21.5% for revenue, 8.4% for Operating Income, and 8.6% for Ordinary Income, all below the standard progress level of 25%. In particular, the lag in progress for Operating Income and Ordinary Income was substantially greater than that for revenue. Achieving the full-year plan of Operating Income of ¥1.54B (+7.6% YoY) will require SG&A efficiency improvements and enhanced profitability in the eBASE Business from Q2 onward. No revisions have been made to the earnings forecast.

Shareholder Returns

The annual dividend forecast for the fiscal year ending March 2027 is ¥15.20 per share, consisting of an ordinary dividend of ¥12.20 plus a ¥3.00 commemorative dividend celebrating the Company’s 25th anniversary. Based on the Company’s forecast EPS of ¥24.34, the Payout Ratio is 62.4%; on an ordinary-dividend-only basis excluding the commemorative dividend, it is 50.1%. Q1 EPS was ¥1.74, representing progress of only 7.1% against the full-year forecast, meaning that the realization of the annual dividend is premised on the accumulation of earnings in the second half. As the amount of share repurchases is not disclosed in this release, the Total Return Ratio has not been calculated.

Risk Factors

1. Deterioration in the profitability of the eBASE Business: Despite revenue of ¥0.44B (+4.8%), segment profit declined sharply to ¥0.02B (-61.2%), and the profit margin fell from 11.7% to 4.3%. Profit contracted despite higher revenue, and if changes in the cost structure or project profitability persist, they could impede a recovery in the company-wide profit margin.

2. Impact of the rising effective tax rate on Net Income: The effective tax rate rose to 44.8% from 33.1% in the previous year. While profit before tax declined 8.2%, Net Income declined 24.2%, indicating that the increased tax burden amplified the earnings decline. It is necessary to monitor whether the tax-related factors will continue or normalize going forward.

3. Incomplete purchase price allocation for goodwill: The ¥0.297B in goodwill arising from the consolidation of KSP-SP Co., Ltd. is provisional. Although its scale is limited at 4.4% of net assets and 3.9% of total assets, the amount of intangible assets recognized, amortization burden, and potential future impairment following the completion of the purchase price allocation should be monitored.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Company’s Operating Income margin and Net Income margin exceeded the industry median, indicating that profitability was relatively high within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, leaving growth at a mid-range level within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Revenue increased 7.9%, but the increase in SG&A expenses (+17.4%) outpaced revenue growth, causing the Operating Income margin to decline 2.6pt from 13.7% to 11.1%. The inability to convert revenue growth into profit growth is the structural challenge highlighted by these results.

2. While the core eBASE-PLUS Business maintained strong performance with both revenue and profit growth (revenue +9.8%, profit +17.6%), the eBASE Business saw its segment profit margin fall sharply from 11.7% to 4.3%, indicating growing polarization in profitability between the businesses.

3. The robust financial foundation, including an Equity Ratio of 89.0%, a current ratio of 653.1%, and cash and deposits of ¥4.34B, supports the Company’s capacity to undertake integration investments associated with the consolidation of KSP-SP and execute shareholder returns. The ¥0.297B in goodwill is provisional, and amortization and impairment trends following the completion of the purchase price allocation will require monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥179–¥189 at ±1% for the cost of equity, and ¥183–¥185 at ±0.1 for ω.

Note:

• Net assets as of the quarter-end were used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional adviser as necessary.

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